India cuts exposure to US treasury securities by $1.1 bn

India reduced its exposure to US treasury securities in Feb due to a slowdown in portfolio investment resulting in lower surpluses.

MUMBAI: India reduced its exposure to US treasury securities in February along with other BRICS economies due to a slowdown in portfolio investment resulting in lower surpluses in these economies. India cut its exposure in US treasury bonds by 1.6 per cent, or $1.1billion, in February to $67 billion, data released by the US treasury department showed. While China, Brazil, Russia and South Africa too trimmed their exposure in the US government bonds, the overall foreign investments in these bonds rose 0.77 per cent to $5.9 trillion during the month.

"Many emerging market economies saw slowdown in portfolio inflows in the month," said Saugata Bhattacharya, chief economist, Axis Bank. "This, among others, is likely to have slowed down reserves piled up in these economies because of which they had lesser surplus to invest."

Also, rise in geopolitical risks because of troubles in Ukraine contributed to a pull-out of capital from emerging markets, say currency analysts. The Reserve Bank of India, which accounts for a bulk of India's investments in US treasury bonds, sold US dollars worth 530 million in February to meet local currency demand, which could have prompted it to pull out from some of its safe haven investments in US treasuries.

Moreover, foreign investors turned cautious about interest rate outlook after Janet Yellen took charge as Federa Reserve chairperson in February, says a section of the market. Contrary to expectations that she would go slow on tapering of quantitative easing on account of weak job data, Yellen said the Fed will not make any abrupt changes to US monetary policy, adding the central bank is on track to reduce its stimulus.

Under her predecessor Ben Bernanke, the Fed bought bonds and infused dollar funds into the financial markets to help lower interest rates and revive investments. In December, however, it decided to scale back its QE as unemployment dropped and economic growth looked better.